Week 1 - Business Objectives And Strategy

Question 1

What is an opportunity cost

Answer 1

An opportunity cost is something that is given up in order to do something else. For example this could be when a business must choose between two different office locations, they will

Question 2

What is the primary sector?

Answer 2

The primary sector is made up of businesses that produce or extract
raw materials. This is the first stage of the production process and includes fishing, farming and mining.

Question 3

What is the secondary sector?

Answer 3

The next stage in the production process is the secondary sector which makes or manufactures goods. They take the raw materials from the primary sector and turn them into finished goods. This often takes place in factories and includes food manufacturers such as Heinz and car manufacturers such as BMW.

Question 4

What is the tertiary sector?

Answer 4

The final stage in the production process is the tertiary sector. This sector provides services. This includes estate agents, hairdressers and restaurants.

Question 5

What is a sole trader?

Answer 5

A sole trader is a business that is owned and run by one person. There is only one owner, but they may have employees who work for them. Sole traders are usually start-ups or small businesses.

Question 6

Advantages of sole trading?

Answer 6

• it is quick and easy to set up as a sole trader.
• the business owner(s) have a lot of control over the business and its money.
• it gives individuals the opportunity to be their own boss and make all the business decisions.
• it has low set-up costs.

Question 7

Disadvantage of sole trading?

Answer 7

• it has the risk of unlimited liability.
• it can involve long work hours and stressful conditions.
• there is a high level of responsibility for the owner.
  -often the owner performs many different roles in the business.

Question 8

What is a partnership?

Answer 8

A partnership is a type of business that has between 2 and 20 owners. They decide to set up and run a business between them.

Question 9

What is a deed of partnership?

Answer 9

A document that is signed by all of the owners of a business setting out the terms they must abide by and their obligations as owners.

Question 10

Advantages of partnership?

Answer 10

• it is usually quick and easy to set up
• there is shared decision-making by the owners
• there is shared responsibility for debt by the owners
• partners bring more skills and ideas
• there is more capital available to invest

Question 11

Disadvantage of a partnership?

Answer 11

• it can involve long work hours
  -profits have to be shared between the partners
  -conflict amongst owners can occur
  -there is the risk of unlimited liability
• one partner may let the others down by not upholding their responsibilities in the business

Question 12

What is unlimited liability?

Answer 12

When the business owner or owners are personally responsible for all the debt of the business, no matter what the value.

Question 13

What is a private limited company?

Answer 13

A private limited company can be a small or large business. A private limited company has limited liability and often these types of business have ‘Ltd’ after the business name.

Question 14

What is limited liability?

Answer 14

When the business owner or owners are only responsible for business debts up to the value of their financial investment in the business

Question 15

What are the owners of a private limited company called?

Answer 15

Shareholders

Question 16

What are shareholders?

Answer 16

A part owner of a private or public limited company

Question 17

What are advantages of a private limited company?

Answer 17

• the owners have limited liability
• it gives individuals the opportunity to be their own boss
• any new shareholders need to be invited, which protects the business from outside influence
• shares in the business can be sold to raise money

Question 18

What are disadvantages of private limited company?

Answer 18

• there is often more paperwork
• in some instances, other people are able to view the business’ financial information
• it can be very time consuming to set up
• the business may require outside professional help to manage its finances
• shareholders will expect to receive a percentage of the profits as
  dividends

Question 19

What is public limited company?

Answer 19

-As a business grows, it may choose to become a public limited company (PLC). In a PLC, shares are sold to the public on the
stock market.
-People who own shares are called ‘shareholders’.
-They become part owners of the business and have a voice in how it operates.
- A chief executive officer (CEO) and board of directors manage and oversee the business’ activities.

Question 20

Advantages of being a PLC?

Answer 20

• the business has the ability to raise additional finance through share capital
• the shareholders have limited liability
• increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale

Question 21

Disadvantage of being a PLC?

Answer 21

• it is expensive to set up, requiring a minimum set up cost of £50,000
• there are more complex accounting and reporting requirements
• there is a greater risk of a hostile takeover
  by a rival company as the company cannot control who buys its shares
• shareholders will expect to receive a percentage of the profits as
  dividends
• shareholders may clash when making decisions about the businesses

Question 22

What is an aim

Answer 22

What the business wants to achieve

Question 23

What is an objective

Answer 23

The targets and steps taken to help businesses achieve their aims and is outlined in a mission statement

Question 24

What is a strategy

Answer 24

Allocating business resources to achieve a long-term goal

Question 25

What is specific in SMART target?

Answer 25

Your goal should be as specific as possible

Question 26

What is Measurable in SMART ?

Answer 26

How will you measure your goal?

Question 27

What is Attainable in SMART?

Answer 27

Are your goals achievable?

Question 28

What is Realistic in SMART objectives?

Answer 28

Is your goal and timeframe realistic?

Question 29

What is timely?

Answer 29

Do you have a timeframe listed in your SMART goal?

Question 30

Mission statement

Answer 30

A brief statement written by the business describing its purpose and objectives, designed to capsulate. It’s present operations